E1-5 Asset Transfer to Subsidiary
Pale Company was established on January 1, 20X1. Along with other assets, it immediately purchased
land for $80,000, a building for $240,000, and equipment for $90,000. On January 1, 20X5, Pale transferred
these assets, cash of $21,000, and inventory costing $37,000 to a newly created subsidiary, Bright
Company, in exchange for 10,000 shares of Bright’s $6 par value stock. Pale uses straight-line depreciation
and useful lives of 40 years and 10 years for the building and equipment, respectively, with no estimated
a. Give the journal entry that Pale recorded when it transferred the assets to Bright.
b. Give the journal entry that Bright recorded for the receipt of assets and issuance of common stock